THEME 1 Flashcards
(28 cards)
positive economic statement
statements based on facts
normative economic statements
based on opinion or judgement
opportunity cost
this is the next best alternative for example spending on education cannot be spent on healthcare making healthcare the OC.
consumer goods
these are goods that are used and can be enjoyed such as food and clothes
capital goods
goods used in the productive process for example machinery
specialisation
when a nation or firm concentrates on producing one particular good or service
comparative advantage
occurs when one country can produce a good or service at a lower opportunity cost than another. This means a country can produce a good relatively cheaper than other countries
division of labour
this is when workers within a firm focus on different sub tasks to break down the process of production and increase productivity. means workers can master one part of production rather than learn the whole process.
free market economy
no gov intervention in the economy
command economy
when a gov owns the means of production and controls what and how to produce
mixed economy
this is when there is partial gov intervention but many firms stays privately owned. these are most common for example UK
diminishing marginal utility
this is when the utility of each product decreases and every unit consumed increases
Price elasticity of Demand PED
responsiveness in demand when there is a change in price
= % change in QD / % change in P
price elastic demand
when a change in price causes a larger percentage change in QD
price inelastic demand
when a change in price leads to a smaller percentage change in QD
income elasticity of demand YED
responsiveness of demand to a change in income
= % change in QD / % change in income
inferior good
a cheaper and lower quality product on the market
increased income leads to a fall in demand for inferior goods as people buy the more expensive better quality products
normal good
increase in income leads to a increase in demand for the good, most goods are normal goods
luxury goods
increase in income causes a bigger percentage increase in demand so demand is income elastic, these goods are luxury such as high end cars and jewlery
income elastic
increase in income leads to a smaller percentage increase in demand so 0>YED<1
cross elasticity of demand XED
how the demand for one good is affected by the price of another
= % change in QD for good A / % change in price for good B
substitute goods
these are goods that can be used instead of other goods for the same or similar utility
complements goods
goods that when used together increase utility
joint supply
when two goods are supplied together from the same source
